Hyperliquid submits proposal for pre-IPO futures to SEC

Hyperliquid Policy Center and trade[XYZ], the largest provider of perpetual markets on the Hyperliquid network, are jointly submitting a proposal to the US securities regulator SEC. They are advocating for an official regulatory framework for so-called pre-IPO perpetuals, abbreviated as IPOPs. This would give ordinary investors access to price discovery around stock market listings, even before a company actually goes public.

In brief:

• Hyperliquid Policy Center and trade[XYZ] are proposing a framework for pre-IPO perpetual contracts to the SEC.
• IPOPs give investors exposure to the price of an upcoming listing, without ownership rights or voting rights.
• The parties are also asking the SEC and CFTC for clarity on how such contracts are classified legally.

IPOs are structurally mispriced

In their joint letter to the SEC, Hyperliquid Policy Center and trade[XYZ] point to a fundamental problem with IPOs. Banks set the issue price on the basis of closed order processes, while the true market value only becomes visible once the share begins trading. That systematically leads to large price differences on the first trading day.

Recent IPOs clearly illustrate this problem. Cerebras went public at $185 and opened at $350. SpaceX recorded an opening price of $150 against an issue price of $135. SK Hynix opened at $170, while the issue price was $149. In all these IPOs, the opening price was 11% to 89% above the issue price, and that difference benefited the recipients of the allocation rather than the companies themselves. The Chinese semiconductor company ChangXin Memory Technologies even started 472% above its listing price in Shanghai.

What is an IPOP and how does it work?

An IPOP is a perpetual contract that publishes a continuous public price for the relevant share in the weeks preceding an expected IPO. Similar to index futures that inform investors about the level of the S&P 500 before the opening bell, an IPOP provides an indication of the value of a share that has never traded publicly.

An IPOP does not represent shares, grants no voting rights and gives no right to an allocation in the IPO. It offers price exposure only. That distinguishes the instrument from existing structures in the private secondary market, which typically do involve the transfer of restricted shares with associated costs and complexity.

Trade[XYZ] has so far run five completed IPOP markets on the Hyperliquid network. In US IPOs, the issue price was 10.8% to 38.4% below the level at which the IPOP traded the day before. The IPOP price shortly before the IPO proved in several cases to be more accurate than the preliminary price indications from traditional sources. All data is recorded on-chain and is publicly available.

Five key points for the SEC

The parties are asking the SEC for clarity on five points. First, they want the regulator to determine whether equity-linked perpetuals qualify as security futures or security-based swaps, so that registration, clearing and margin requirements are clear. They also ask for adjusted disclosure requirements that fit the instrument itself, rather than rules that apply to share offerings.

In addition, they advocate clear criteria on when an IPOP may be used, rules regarding market integrity such as transparency on oracle and settlement rules, and as an end goal: access for all US investors, including retail investors. A phased introduction with limits on leverage and position sizes could serve as a starting point.

Earlier, Hyperliquid also supported another initiative directed at the US regulator: together with Douro Labs, the company advocated the abolition of a specific SEC trading rule. Hyperliquid’s HYPE token is currently at $58.74, down 0.7% in the past 24 hours.